Chapter 28 - The Aggregate Expenditures Model

Key Items

• The main focus of this chapter will be the aggregate expenditures model
• The aggregate expenditures model was created by John Maynard Keynes
• The model can be used by government in two ways by increasing Government Purchases or Lower Taxes to achieve equilibirum GDP

Key Symbols

• C = Consumption
• Ca = Consumption after taxes
• S = Savings
• Sa = Savings after taxes
• Ig = Gross Investment
• X = Exports
• M = Imports
• Xn = Net Exports
• G = Government Purchases
• T = Taxes

Key Formulas

• C + Ig = GDP (private closed economy)
• C + Ig + (X - M) = (private open economy)
• C + Ig + Xn + G = (public open economy)
• 1/(1 - MPC) = Multiplier
• MPC + MPS = 1
• Increase in Aggregate Expenditures/Increase in Real GDP = MPC